Following months of rumors and weeks of retail leaks, Microsoft has made it official. Starting Friday, August 28, the 120GB Xbox 360 Elite will only cost $299.99, down from its current $399.99 price point.

[UPDATE] The new model will remain largely the same as the previous configuration, other than the fact that, like the PlayStation 3, it will no longer be bundled with either an HDMI or an component HD AV cable. "We have found that many Xbox 360 customers were not using the HD cables included in the Xbox 360 Elite box, so we removed them," said a Microsoft rep of the change. While HDMI cables can be purchased for under $10 online, the 360 component HD AV cable is $39.99 new.

Also, as rumored, the 60GB Xbox 360 Pro is being "phased out" at a $249.99 price point, down from $299.99. "It's being put to bed," Xbox 360 and Xbox Live director of product management Aaron Greenberg told GameSpot. The executive believes stocks of the Pro, which will be the last white 360 with a hard drive packed in, should last until just after the holidays.

Endangered species: The now-$249.99 Pro will be gone by year's end.

With the Pro's demise, the Xbox 360 will have two SKUs: the $299.99 Elite and the $199.99 Arcade, which has 512MB of built-in memory for game saves and Xbox dashboard software installs. The price of the latter console will remain the same, and Greenberg said there were no announcements regarding the prices of the individually sold 360 hard drives, which currently cost $99.99 for the 60GB and $149.99 for the 120GB. Greenberg also had no updates on the cost of the 360's wireless adapter, which sells for $99.99.

The Elite's reduction comes exactly one week after Sony announced the $299.99 PlayStation 3 Slim at GamesCom in Germany. However, despite the fact the Blu-ray and Wi-Fi-equipped PS3 now matches the Elite in terms of memory and price, Greenberg still feels the latter is a better value. He pointed to 360 software exclusives, like Halo 3: ODST and Forza MotorSport 3. and Xbox Live's online features, like Netflix and the forthcoming Last.fm, Facebook, and Twitter integration, still set for "this holiday season." He also said price was a major factor for the 360 selling well.

"You cannot underestimate the fact that we have two consoles. If you have $200 in your pocket today, you can go buy an Xbox 360," he explained. "I think a big part of the reason why--at a time where Nintendo and Sony are seeing double-digit year-over-year declines, and we're actually up 17 percent--is due to that mass-market price point."

At $199.99, the Xbox 360 Arcade is still the cheapest console on the market.

While Greenberg did believe the price drop will increase Xbox 360 sales, he declined to offer a full fiscal-year forecast for the console, which has now sold over 31 million units worldwide to date. (Sony has said it expects to sell 13 million PS3s by the end of its fiscal year.) He also declined to comment on whether or not Microsoft was planning a hardware revision of the 360 similar to the PS3 Slim, which now boasts an improved cooling system and a smaller and more energy efficient 45nm Cell processor. Without getting into specifics, Greenberg did say that Microsoft made internal improvements to the Xbox 360 hardware long before Sony did, declaring, "We're ahead on that."

In terms of recent Xbox Live initiatives, Greenberg said the recent launch of the premium avatar item store "has exceeded even our wildest projections," although he, again, declined to give hard numbers. Although Splosion Man is currently the only title to reward players with avatar items, he said many upcoming 360 games will have such unlockables. "I think it will become fairly common in games going forward," explained Greenberg.

Last but not least, Greenberg said the freshly minted Games on Demand store has been "more in line with expectations. Like digital distribution in other industries, there's a lot of trial and error. But for the most part, it's performing well."